South Dakota
House committee squashes half-century tax break for SD data centers
PIERRE — Controversial data centers built in South Dakota won’t get a sales tax break—at least not yet.
The House State Affairs committee met Feb. 4 to weigh House Bill 1005, a bill which would have given owners and operators of qualifying data centers exemptions on the state’s sales and use tax for investments made in computer software and “enterprise information technology equipment”—a wide array of computer hardware, servers, power infrastructure, maintenance and security systems.
The exemption would apply to data centers that are issued a building permit between July 1 and June 30, 2036.
Data centers are physical facilities that house servers and networking equipment, which are typically used to store, manage, process and distribute large amounts of data.
Some of the common types of modern data centers include:
- AI data centers, which are specifically designed to support artificial intelligence applications;
- Colocation data centers, where third-parties manage the servers and components;
- Cloud data centers, where major providers, like AMS, Microsoft and Google, host cloud-based data and applications; and
- Enterprise data centers, which are often used for private uses by corporations.
Particularly large data centers are sometimes known as “hyperscalers.” These facilities can cost hundreds of millions to billions of dollars and require hundreds of acres of land to build, with construction at-times occurring in multi-year phases.
The legislation would have required businesses to submit documentation to the secretary of the state Department of Revenue, who would determine if the data center’s eligibility for the tax exemption.
A data center would have been able to receive the break if it could prove the facility’s electrical demands were under a written agreement or rate schedule that avoids shifting electrical costs to other consumers; and notice was given to local water providers that the site’s water consumption was “compatible for the location,” per the bill’s language. Data center owners would have also had to file an annual affidavit that discloses whether the business continues to meet the eligibility criteria.
However, those documents would have been considered confidential under the proposed legislation.
The bill was rejected by the committee, with nine members voting for and three against the legislation. Sioux Falls Republican Bethany Soye was excused from the vote.
Supporters of the legislation told committee members the sales tax break was essential to give data center investors and developers enough incentive to build in the Mount Rushmore state.
State Rep. Kent Roe, R-Hayti, who drafted the legislation, urged the committee to green-light the tax break on the premise that the state would reap a bounty of benefits—from “immense” property tax revenue and the creation of new high-quality jobs, to diversifying the state’s economic makeup.
Roe said other states have already legislated or otherwise implemented sales tax exclusions, and South Dakota needs a similar policy to remain competitive.
“We tax this technology higher than most,” Roe said. “That’s the truth. President Trump has stressed America’s need to lead. Our senators and congressmen highlight AI’s role in health care and national security. This is a national concern.”
Data center lobby uses well-worn revenue pitch
Steve DelBianco, president of NetChoice, a D.C. e-commerce trade group, threw out big numbers to buoy the benefits argument. Over the next 10 years, he projected $333 milllion of new property tax revenue to South Dakota from data centers alone.
For Jay Grabow, chair of the Deuel County Commission, the existential crisis his area faces is real. In 1920, per historical U.S. Census publications, Deuel County once called 8,759 people local inhabitants. Fast-forward to 2024, the county’s population has more-than-halved to 4,335, according to the U.S. Census Bureau.
Some of that Grabow attributes to the farming industry becoming more efficient over time—driving people per acre down—and the loss of at least one 200-employee business.
That means increased taxes over a smaller taxable population, Grabow said. And it also means Dallas-based Applied Digital, which is proposing a 430 megawatt AI data center east of Toronto, South Dakota, is, in the commissioner’s eyes, a means to lowering property taxes.
“We’re merely trying to keep what we had, merely trying to figure out a better way to do property taxes than to burden it on the people,” Grabow said. “If we can spread that across a $400 million billing, we have $1.1 billion of assets today. That’s a nearly-40% increase on our assets that we can spread those taxes across. That’s a 10 to 15% property tax [cut] across the board for those people.”
The economic windfall arguments resembled the debate over carbon pipelines over the last several years, when pipeline companies and some analysts projected an Iowa company’s transmission line could generate billions in the state and lower local taxes, as seen in previous Argus Leader reporting.
DelBianco said businesses and governments have increased their use of the cloud in recent years. The tech industry is tasked with building 50 data centers a year to keep up with U.S. demand, he added.
But the supply can’t be met if South Dakota doesn’t give developers and businesses a big-enough carrot to offset the significant capital investments they would make, DelBianco said.
Nick Phillips, executive vice-president for external affairs of Digital Applied, said South Dakota has been “unintentionally tax[ing] itself out of this market” under the current tax policy.
“The siting decision is binary,” Phillips said. “A project is built here or it is built somewhere else … Other states are capturing the investment, the jobs, and the long-term tax base.”
“The truth is that it’s just fiscally irresponsible to spend a billion dollars on a data center and have the equipment [that] goes in there, be subject to sales tax, when a billion dollar manufacturing, agricultural, another facility doesn’t pay sales tax on its equipment,” DelBianco added . “There are 40 states that exempt the equipment, so we have to pick the states that welcome through that policy.”
Data center opposition says tech threatens South Dakota’s largest industry
But opponents viewed the Big Tech push as an infringement upon South Dakota’s already No. 1 industry: agriculture.
Michelle Oftedahl, a Toronto, South Dakota, farm owner who lives a few miles away from Applied Digital’s proposed data center, spoke to the “unintended consequences” of boosting data centers. Farmland often out-prices what young farmers can afford to break into the ag industry, Oftedahl said, but it’s not too much for corporations with billions of dollars to spare.
Incentivizing data centers, the fifth-generation farmer added, would give rise to companies “buy[ing] land up cheap, knowing that they can cash in on possible future expansion projects, such as power plants, substations, and transmission lines, things that are needed to support the high amount of energy production required.”
“Encouraging large-scale economic development like data centers risks discouraging many young people from choosing agriculture for their future,” Oftedahl said. “This isn’t simply a vote about a sales tax exemption. It’s a statement about our values. Is South Dakota still first and foremost an ag state, or is large industrial economic [sic] now more important?”
Sara Steever, a retired Lennox resident who formerly led Sioux Falls agri-marketing agency Paulsen, questioned whether companies “worth billions and trillions of dollars” needed the tax breaks.
“Turns out that the fact that we can provide access to the megawatts of energy that is needed is tremendously valu[able],” Steever said as a remote testifier. “These companies don’t need tax breaks. They need connectivity, which we already have.”
Dakota Rural Action Lobbyist Melissa McCauley said the bill would lead to a “huge miss on revenue” for the state, given what she perceived as the broad nature of the proposed exemption.
“We are concerned that nearly everything needed to outfit the data center down to its door locks, security cameras, and even the cost of laying the fiber to the center would be exempt,” McCauley said. She asked openly whether a fiscal note should be added to the bill.
Tax break eligibility would not be public record under Roe bill
The stipulation that a data center’s eligibility documents would not be public record rankled opponents—some lawmakers, too.
Austin Adee, a Deuel County resident, said that section of the bill would create an “NDA-shielded secret court.” House Speaker Jon Hansen, who is running for South Dakota governor in 2026, raked the measure over this.
“This particular measure lacks transparency,” said House Speaker Jon Hansen. “The information goes to the secretary of the Department of Revenue, who can unilaterally decide without real qualification whether or not there’s going to be a tax break or not, whether or not rates are going to pass on, whether rate increases are going to pass on to consumers, and the people aren’t entitled to see any of the documentation that supports that decision. I think that’s wrong.”
The bill split the few Democrats on the committee, with Rosebud State Rep. Eric Emery supporting the legislation and House Minority Leader Erin Healy, of Sioux Falls, against it.
Emery asked Roe if the initiative behind the data center push included any guarantees that they would bring the promised jobs and wage-growth, to which Roe responded, “there’s no guarantees.”
Roe expounded upon this later, though, by pointing to the property tax revenue Applied Digital would likely bring to Deuel County—”north of $5 million” per annum, the Hayti lawmaker said, which is close to half of the county’s total budget.
At one point, Emery made a motion to send HB 1005 to the floor without a recommendation from the committee. Assistant Majority Leader of the House Marty Overweg spurned the idea, calling it “bad committee policy.” The motion died on a 5–7 vote.
Healy noted the day’s hearing lacked testimony from Sioux Falls stakeholders, despite a surge of public input in the city.
“I do believe that there is potential economic impact for data centers, but I also believe that economic development should never move faster than public input and transparency and also accountability,” Healy said.
House members will likely have to take up the debate once more during the 101st Legislative Session, as State Sen. Casey Crabtree, a Madison Republican who works for an area energy provider, filed a similar bill in the hours after the committee’s Feb. 4 decision.
The new legislation, a self-titled “Data Center Bill of Rights for Citizens”—akin to Crabtree’s 2024 “Landowner Bill of Rights,” which offered concessions to carbon pipeline opponents in order to ease pipeline development in South Dakota—also intends to exempt data centers from paying a sales and use tax for purchases made in developing a site, while also clarifying regulatory authority and preventing electric rate shifts onto consumers.
Crabtree’s bill does not provide an end-date on the sales and use tax exemption.
While the race to secure the nomination for governor has dominated the headlines ahead of the June 2 primary, Republican voters will also choose a candidate for one of South Dakota’s two U.S. Senate seats.
Incumbent U.S. Sen. Mike Rounds, who is seeking a third, six-year term, holds a comfortable lead over his GOP primary challenger, Justin McNeal, a Navy veteran and business owner from Rapid City, according to the latest poll from News Watch and the Chiesman Center for Democracy.
Here is a recap of the two candidates along with their thoughts heading into the June 2 election. The winner of the Republican primary will meet Democrat Julian Beaudion and Independent Brian Bengs in the Nov. 3 general election.
Hometown: Fort PierreAge: 71Occupation: Insurance broker; businessman; former governor (2003-2011); U.S. senator since 2015In their own words:
Rounds provided the following statement to News Watch:
“Working in the U.S. Senate, I’ve stayed focused on results that matter for our kids and grandkids. That means keeping the government off your back and out of your business and wallet. That means keeping our communities safe and creating a business climate that encourages job growth to keep our kids in South Dakota. And that means safety through a commitment to our men and women in uniform.
This past summer, we worked with President Trump to pass the Republicans’ Working Families Tax Cuts legislation. Without Congressional action, the average South Dakota family would have seen a $2,500 tax hike this year. Our legislation not only prevented the largest tax increase in American history, but it also provided additional tax relief for hard-working South Dakota families. That includes no tax on tips, no tax on overtime and no tax on Social Security for nearly 9 out of 10 seniors.
We’ve accomplished some great things, but our work is not done. I am running for reelection to continue bringing results back home to South Dakota.”
Hometown: Rapid City (born in Illinois and raised in Texas)Age: 42Occupation: Business owner (Dakota BioChar); Navy veteran (2001-2007)In their own words:
“I’m feeling the people in South Dakota are ready for a change. The challenge we are running into is that not enough people know who we are, but as soon as they know who we are, it’s an easy decision for them,” McNeal told News Watch in a phone interview. “I don’t have millions and millions of dollars. I’ve been largely self-funding this race up to this point.”
McNeal, who is a licensed pilot, said he has flown his small plane to events throughout the state in an attempt to get his name out.
“I talk to people about the issues that matter and I tell them the biggest thing you can do to help me is tell 10 people about me and to go vote June 2. We need about 50,000 votes to win the primary,” he said.
McNeal is not critical of Rounds and conceded “he is very popular” but said Rounds has not done enough to tackle the country’s growing fiscal deficit.
“I don’t think Mike is doing a bad job. I’m just concerned with the federal debt and the people that got us into that mess are not going to be the ones to get us out of it,” McNeal said.
“This is going to cripple the country. It just seems like politicians are focused on what they can bring to their home district or home state. And the problem with that is every member of Congress is doing the same thing, so everyone is taking and taking without making sure we can pay for it.”
South Dakota News Watch is an independent nonprofit. Read, donate and subscribe for free at sdnewswatch.org. Contact politics and statehouse reporter Alexander Rifaat: 605-736-4396/alexander.rifaat@sdnewswatch.org.
South Dakota
Supreme Court ruling robs Native Americans of ‘silent partner’ in legislative redistricting – ICT
This is the second installment in a four-part series profiling the four candidates seeking the GOP nomination for governor of South Dakota.
DELL RAPIDS, S.D. – The city of Dell Rapids, roughly 20 miles north of Sioux Falls, labels itself “The Little City with the Big Attractions.” And it’s here, in a relatively humble law office off the main road leading into town, News Watch met with one of its biggest current draws.
Over the past few weeks, state House Speaker Jon Hansen has enjoyed a growing prominence in the race to be the Republican nominee for governor.
After polling at just 2% when he initially announced his candidacy in April of last year, Hansen, who at 40 is the youngest in the race, now finds himself within striking distance of being one of the two candidates that could make a potential runoff.
In a poll commissioned by News Watch and the Chiesmen Center for Democracy last month, Hansen, a lawyer by training, drew 18% of support from potential GOP primary voters.
If no candidate receives at least 35% of the vote on June 2, the runoff will be held eight weeks later, on July 28. The winner of that contest will meet Democrat Dan Ahlers, also of Dell Rapids, in the Nov. 3 general election.
So what does Hansen put his steady rise in the race down to after spending the previous few months being viewed as the long shot candidate?
“The debates were a huge factor because people across South Dakota were able to line up those four candidates on the stage and take a measure and get a sense of who is honest and who is genuine,” Hansen told News Watch.
In a poll of viewers after the first GOP gubernatorial debate on KELO-TV in March, Hansen was seen as the winner, while observers were also left impressed by his performance in the second debate co-moderated by News Watch and SDPB.
“The more people have been able to line up the four candidates, the more they have been coming our direction,” Hansen said.
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In the same News Watch/Chiesman poll from last month, 27% of respondents did not know Hansen, which, some observers believe, could indicate he has the most potential of the four candidates to grow his support.
“A lot of people hadn’t heard of us and in large part, it’s never been about us. Karla and I have been fighting for the issues. We’re not big self-promoters,” Hansen said, referring to his running mate for lieutenant governor, Karla Lems.
From tragedy to political awakening
Hansen’s early childhood was marked by the death of his father, who died from a self-inflicted gunshot wound.
Hansen describes the experience as “awful” but that it allowed him, his mother and his sister to grow closer.
“For awhile it was just my mom, my sister and I, and what really pulled us through that was the unconditional love we had for each other,” Hansen said.
His mother eventually remarried and they moved from Yankton, where he was born, to Dell Rapids, where he has lived for most of his adult life.
He said he had fond memories growing up in Dell Rapids, but he wasn’t the best of students. He also wasn’t interested in politics.
Hansen said that all changed when he got a job working at the local movie theater, where he befriended a female coworker involved in the pro-life movement.
“One day she brought up the issue of abortion and, after we had a bit of a back and forth, I told her. ‘I don’t get it. The baby doesn’t even know the baby exists. I don’t see what the big deal is?’ Then it got real quiet and I noticed that she started to cry. In that moment, I realized there was something I was missing,” Hansen said.
“I think a lot of people have those moments that get them engaged in the political process,” he said.
Hansen said the conversation not only awakened his desire to enter the political arena but that it also reconnected him to his Catholic faith.
He is married to his high school sweetheart, Sheila, and they have six children.
Hansen subsequently got involved in anti-abortion campaigns in 2006 and 2008, which didn’t turn out the way he wanted. In both years, South Dakota voters rejected initiatives that would have instituted a near-total ban on abortions.
“The pro-life side lost those fights, but it started the journey I’m on now.”
After completing an internship at the South Dakota Legislature during college, in 2010 Hansen successfully won an open seat in the state House against a Democratic opponent who, it turned out, was his high school government teacher.
“Believe me, he never saw it coming because I was not a good high school student,” Hansen joked.
Hansen served one term and, after his return to the Legislature in 2019, played a role in South Dakota eventually enacting an abortion ban in 2022. On the campaign trail, he has also touted his involvement in defeating Amendment G in 2024, which would have enshrined the right to an abortion in the state’s Constitution.
‘In the arena’
Hansen said his work on abortion underscores his ability to deliver for the conservative Republican agenda.
“I’ve not just talked. I’ve been in the arena fighting the fight on the issues,” Hansen said.
Besides abortion, Hansen also highlighted his work to lower property taxes, which has come under heavy scrutiny from one of his primary challengers, U.S. Rep. Dusty Johnson.
In recent weeks, Johnson has utilized his significant campaign war chest to attack Hansen’s role in the passage of a series of bills during this year’s legislative session that, in some fashion, lower property taxes in exchange for raising sales taxes.
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In particular, there is Senate Bill 245, which will create a property tax relief fund using money generated from the planned 0.3% sales tax increase set to take effect next year.
Former Gov. Kristi Noem enacted a law in 2023 that lowered the sales tax from 4.5% to 4.2% until 2027. Efforts to make the measure permanent were rejected in the state Senate.
Hansen said Johnson’s claims that Hansen has raised sales taxes are “disingenuous” and pointed out that, at least when it comes to the scheduled sales tax increase, it was a case of trying to make lemonade out of lemons.
“I just don’t think it’s appropriate for South Dakotans to give out tax breaks to some of the world’s richest tech companies. They want to come to South Dakota, they can pay taxes just like everyone else.”
– Republican gubernatorial candidate Jon Hansen
“We (the state House) wanted to make the cut permanent, but we didn’t have the votes in the Senate. Every year after, we tried to make that sales tax cut permanent and every year the Senate didn’t have the votes,” Hansen said. “So the reality is it was going up anyway.”
“The next best thing we could build a consensus around was take all that money, dollar for dollar, and put that towards property tax relief,” Hansen said, arguing that the break in property taxes will outweigh any rise in sales taxes.
Hansen said if he were to ascend to the top job in Pierre, he would focus on examining state finances to see where he could potentially cut more taxes.
“We’re going to look at our state budget and cut government spending and use that savings to provide more tax relief,” he said.
Hansen said he also wants to clean up what he sees as a culture of grift in Pierre that favors larger corporations over small businesses.
“It’s a breeding ground for corruption. You see it when people who sit on the Governor’s Office of Economic Development (GOED) board dole out money to certain companies then get executive jobs with those companies,” Hansen said, citing the recent example of CJ Schwan’s, a food manufacturer that hired a former GOED commissioner and received $69 million in state grants and loans.
“I don’t think it’s appropriate. It seems very Washington, D.C.-esque to me,” Hansen said.
Hansen’s hostility toward larger corporations is further illustrated by another piece of key legislation he passed in this past session.
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Along with Senate President Pro Tempore Chris Karr, Hansen passed Senate Bill 135, dubbed the Data Center Bill of Rights for Citizens, which puts certain restrictions in place for any future data center project.
He ruled out being open to providing data center companies any special tax privileges to operate in the state.
“I just don’t think it’s appropriate for South Dakotans to give out tax breaks to some of the world’s richest tech companies,” Hansen said. “They want to come to South Dakota, they can pay taxes just like everyone else.”
With the campaign entering the final stretch, what’s his strategy to win over voters before they vote?
“We’re going to continue being positive, share our vision of the state and show our track record of results,” Hansen said.
South Dakota News Watch is an independent nonprofit. Read, donate and subscribe for free at sdnewswatch.org. Contact politics and statehouse reporter Alexander Rifaat: 605-736-4396/alexander.rifaat@sdnewswatch.org.
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